Golden Parachute as a Compensation Shifting Mechanism

24 Pages Posted: 27 Jul 2002  

Albert H. Choi

University of Virginia School of Law

Multiple version iconThere are 3 versions of this paper

Date Written: August 4, 2003

Abstract

We demonstrate how a golden parachute can be used to improve the target shareholders' net return by partially shifting the managerial compensation burden to the buyer through a higher acquisition price. Consistent with the empirical observations, we show that 1) golden parachute will be contingent on a change-of-control rather than solely on the manager's layoff, 2) golden parachute will be promised early, e.g., at the time of the manager's employment, not just in the face of a takeover or a merger, 3) the shareholders would want to extend its coverage to other employees, and 4) the size of the parachute would be much larger than the manager's annual compensation.

Suggested Citation

Choi, Albert H., Golden Parachute as a Compensation Shifting Mechanism (August 4, 2003). Available at SSRN: https://ssrn.com/abstract=319421 or http://dx.doi.org/10.2139/ssrn.319421

Albert H. Choi (Contact Author)

University of Virginia School of Law ( email )

580 Massie Road
Charlottesville, VA 22903
United States

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